Facts

On April 10, 2020, in response to COVID-19, San Francisco Mayor London Breed enacted the Ninth Supplement to Mayoral Proclamation Declaring the Existence of a Local Emergency Dated February 25, 2020, an ordinance that capped the commissions of third-party delivery platforms can charge San Francisco restaurants at 15%. The ordinance was intended to protect San Francisco's restaurants during the COVID-19 pandemic. On November 3, 2020, California voters passed Proposition 22, a measure that clarified that workers who used platforms like delivery services like Doordash and Grubhub were independent contractors without certain benefits. Both companies were vocal proponents of the Proposition, while various members of the City's Board of Supervisors were vocal opponents. On November 10, 2020, the City's Board of Supervisors codified the temporary commission cap from the April 2020 Order and enacted Article 53 to the San Francisco Police Code. On November 20, 2020, Mayor Breed approved the ordinance to prohibit third-party food delivery services from "restricting restaurant pricing." On July 16, 2021, Doordash, Inc. and Grubhub Inc., two of the largest online delivery services, brought a complaint against the City and County of San Francisco. On October 1, 2021, plaintiffs filed their first amended complaint alleging violations of the Contract Clause, Takings Clause, Equal Protection Clause, Due Process Clause, and First Amendment of the U.S. and California constitutions.

PLAINTIFFS' CONTENTIONS: Plaintiffs alleged that the ordinance violated the Contract Clause because it both substantially impaired their existing contracts with restaurants that included commission rates above 15% and did not have a significant or legitimate public purpose since it was enacted to benefit a special-interest group, the restaurants. Further, plaintiffs argued that the ordinance was unreasonable because it was arbitrary and utterly unsupported as there were no extensive legislative findings to support the commission cap. Plaintiffs also alleged that the ordinance was an unconstitutional taking of their contractual right to those commissions in violation of the Takings Clause. Moreover, plaintiffs contended that the ordinance violated the Due Process Clause and Equal Protection Clause because it imposed an irrational and arbitrary direct cap on the third-party platform's ability to generate revenue needed to cover their expenses and instead provided preferential economic treatment to certain restaurants at the direct expense of plaintiffs, a politically unpopular group of businesses based on their support of Proposition 22. Plaintiffs contended that the ordinance was enacted as a result of its public support of Proposition 22 and that it could plausibly chill an ordinary company from engaging in the same protected political activity. Finally, plaintiffs maintained that the ordinance exceeded the City's authority under the California Constitution because it did not promote the welfare of the general public.

DEFENDANT'S CONTENTIONS: Defendant contended that the alleged impairment of the contracts was not substantial because plaintiffs' contracts were at will and did not provide a guaranteed revenue stream and that the 15% cap imposed was not a significant limitation. Moreover, defendant alleged that the regulation served a valid purpose of ensuring that restaurants can thrive in San Francisco and continuing to nurture vibrant, distinctive commercial districts. Defendant contended that the ordinance was not a taking because it did not take anything for its own use and simply imposed an obligation within its Police Powers.

Result

The City passed Ordinance 164-22 and parties stipulated to a dismissal of the claims.